Harvey Investment Company

January 31, 2025

To the friends and clients of the Harvey Investment Company:

The S&P 500 had a stellar year in 2024 as the Index rose 25.02%.  It is the second consecutive year of more than 20% gains for the Index – the best 2-year stretch since 1997-1998.   Similar to the concentrated returns of 2023 produced by the “Mag Seven,” the Index’s performance was dominated by a narrow group of stocks for a second consecutive year.  This time just five stocks – Nvidia, Apple, Meta, Microsoft and Amazon provided 45% of the returns of the Index.  Indeed, one stock – Nvidia – provided 20% of the Index’s returns in 2024.  Still, the return on the rest of the index was well into double digits goosing the net worth of many Americans.  This country’s economy is deeply dependent on a rising stock market for the confidence it instills in consumers.  Let’s hope it keeps up.  

The future, as always, is murky, particularly so with the change of administrations and the change of majority in the Senate.  An overhaul of many long-standing policy norms is promised.  Where it leads is unknown, but significant change and surprises are to be expected.  The structuring of equity portfolios today demands special care and an extra emphasis on quality. 

In several past letters, we have discussed the distinction between gambling and investing. We do not see any moral dimension to either activity.  Nevertheless, it is important to define the objectives one hopes to achieve with the assets one devotes to equities.  There are many investment paths to pursue.  Each offers a unique probability of success or failure.   This seems a particularly important time to test one’s own proclivities. Here are some characteristics that make gambling fun:

• Money is made or lost in a brief time frame

• The outcome of a wager is unknown when placed  

               3)    There is a social element to the activity

               4)    A shockingly good result is possible

               5)    Everyone is doing it. FOMO (fear of missing out) is at work

               6)    Luck plays an important role in the outcome

Investment operations tend to have these characteristics:

1)      Money is made or lost over a lengthy time frame

2)     The outcome of the wagers is unknown when placed

3)      A shockingly good result is possible

4)      Luck plays an important role in the outcome

5)      Hard work and skill can change the role luck plays, but they do not guarantee success

What makes investing interesting is the similarity between gambling and investing with the notable exception that the investor, with hard work and discipline, can alter the odds of a wager in his favor.  It is the differences, particularly #1 in the above lists, that matter a great deal in determining success or failure and, also, the pleasure to be derived from each activity.  We have often quoted Keynes in this regard, “human nature desires quick results, there is a peculiar zest in making money quickly, and remoter gains are discounted by the average man at a very high rate.”

We are acutely aware of a concept known as gambler’s ruin, which basically says that any gambler will eventually have an unlucky streak that will run him/her out of money.  Clearly, our priorities indicate a complete commitment to investing when it comes to handling your money.  That way we need not worry about gambler’s ruin.

We hope you have a great year and that the steady hand we play continues to produce strong returns.

Sincerely,

Samuel C. Harvey

Disclaimer: This letter is furnished for general information purposes.  There is no assurance that the specific securities identified and described in this letter are currently held in advisory client portfolios or will be purchased in the future. The reader should not assume that investments in the securities identified and discussed were or will be profitable or that their mention is a recommendation to buy or sell.